Retail attracts premium debate

Warringah Mall is one of the key assets in the AMP Shopping Centre Trust. Photo: Dallas Kilponen

In the $1.3 billion takeover bid for the AMP Shopping Centre Trust by Centro Properties, much has been made of the control premium required to make the attempt a success.

In AMP's target statement, the independent advisors Deloitte Touche Tohmatsu said an appropriate level was between 15 per cent and 25 per cent of the going price of the trust before the bid was announced.

The bid has seen property analysts debating the appropriate levels of control premiums in listed property trust takeovers.

AMP Shopping Centre Trust's key assets are Warringah Mall in Sydney's northern suburbs, a half-share of the newly redesigned Knox City in Melbourne and Pacific Fair at Broadbeach on the Gold Coast.

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Analysts said there were strong arguments as to why the 15-25 per cent premium applied by Deloitte Touche Tohmatsu in the AMP/Centro bid was appropriate, including that the retail sector as a whole was trading at about a 15.5 per cent premium to net tangible assets.

Other examples of control premiums paid in a range of recent transactions included the price paid by Westfield Trust to gain a strategic stake in AMP's trust. Westfield entered the fray when it bought a 19.9 per cent stake in AMP Shopping Centre Trust at $1.80 a unit. That compared with the $1.63 a unit Centro was officially offering through its share-and-cash bid for the AMP trust.

In the Colonial First State takeover in September 2002, the Commonwealth Bank and Gandel Retail paid a 19 per cent premium to net tangible assets to buy the assets of Colonial, which was in response to the premium implied by Mirvac's final bid, which was 18 per cent.

In addition only 35 per cent of Colonial's assets were retail-based. Mirvac specifically said that it was seeking Colonial's retail assets.

This would indicate that a larger premium should be payable for a pure retail portfolio.

Last month Macquarie Goodman paid a 10 per cent premium to the value of Colonial's industrial assets.

The industrial asset class attracts the lowest management fees and as such should attract the lowest premium to net tangible assets.

Analysts argued that a premium was necessary to reflect the scarcity of the trust's prized assets.

In the current takeover, Deloitte Touche Tohmatsu used two valuation parameters. The first was a net tangible asset analysis, where the firm said that investors should expect a control premium of 15-25 per cent, which equates to a unit price of between $1.68 and $1.83.

The second was a market price analysis, based on the AMP trust's trading range - $1.70 to $1.75 a unit - since Centro announced its offer.

In response Centro's announcement of April 28 claimed that the independent expert's report failed to justify the 15-25 per cent control premium for the net tangible asset-based valuation.

But analysts have subsequently pointed out that the trust has traded at an average 5 per cent premium to the Centro offer value since the announcement of the offer, indicating the market was expecting a higher bid.

"No unit-holders will accept the Centro offer while they can get a higher price selling on market," one analyst said.